conducting-resource-asset-due-diligence

# Conducting Resource Asset Due Diligence

## When To Use

- Evaluating an acquisition or investment in mining, oil & gas, timber, water, or other extractive/natural resource assets
- Reviewing a Competent Person's Report (CPR), National Instrument 43-101 technical report, or SEC S-K 1300 disclosure for accuracy and completeness
- Assessing operational viability of a producing or development-stage resource property
- Conducting pre-bid technical screening for resource-focused fund deployment
- Performing ongoing portfolio asset review where geological or regulatory conditions have materially changed

## Inputs To Gather

- **Reserve/resource reports**: Most recent CPR, 43-101, JORC, or SPE-PRMS compliant reserve estimates with effective dates
- **Geological and geophysical data**: Drill logs, assay results, seismic surveys, core sample analyses, stratigraphic models
- **Production history**: Monthly/quarterly production data, decline curves, recovery rates, water-cut trends (for O&G), grade reconciliation (for mining)
- **Operating cost data**: Cash costs per unit (e.g., $/boe, $/oz), AISC breakdowns, OPEX budgets, and contractor agreements
- **Title and mineral rights**: Lease agreements, concession terms, surface rights, royalty obligations, working interest / net revenue interest schedules
- **Permits and regulatory filings**: Environmental permits, mine plans, reclamation/closure bonds, water discharge permits, air quality permits [VERIFY jurisdiction-specific requirements]
- **Environmental and social**: Phase I/II ESA reports, tailings management plans, community benefit agreements, ESG disclosure history
- **Capital expenditure plans**: CapEx budgets for development, sustaining capital, and expansion scenarios
- **Commodity price assumptions**: Forward curves, hedging contracts, offtake or marketing agreements

## Workflow

1. **Define DD scope and materiality thresholds**
   - Confirm asset type (producing, development, exploration) and commodity
   - Set materiality thresholds for reserve classification discrepancies, cost variances, and environmental liabilities
   - Identify reporting standard applicable to reserve estimates (JORC, NI 43-101, SPE-PRMS, SEC S-K 1300) [VERIFY which standard governs]

2. **Geological and reserve assessment**
   - Verify reserve/resource classification (Proved/Probable/Possible or Measured/Indicated/Inferred) against supporting data
   - Cross-check drill spacing, sampling methodology, and QA/QC protocols against applicable reporting code requirements
   - Evaluate geological model assumptions: continuity, grade/thickness interpolation method (kriging, IDW), cut-off grades
   - Assess exploration upside and conversion potential from Inferred to Indicated/Measured categories
   - Flag any reserve estimates relying on unverified historical data or non-compliant methodologies

3. **Operational and production review**
   - Analyze production history against type curves or mine plan projections
   - Review key operational metrics: recovery rates, availability/utilization, strip ratios (mining), or decline rates and EUR (O&G)
   - Evaluate processing/refining infrastructure: plant throughput capacity, metallurgical recovery, or gas processing capacity
   - Assess workforce, contractor dependencies, and key-person risk at the operational level
   - Identify deferred maintenance, equipment age, and sustaining CapEx adequacy

4. **Regulatory and permitting review**
   - Confirm all material permits are current, transferable, and not subject to pending challenges [VERIFY transferability on change of control]
   - Review compliance history: NOVs, consent orders, regulatory fines, or pending enforcement actions
   - Assess reclamation/closure obligations and adequacy of bonding or financial assurance
   - Evaluate royalty and tax regimes, including government participation interests or production-sharing terms [VERIFY fiscal terms by jurisdiction]
   - Check for indigenous land claims, heritage site overlaps, or pending litigation affecting title

5. **Environmental and ESG liability assessment**
   - Review existing environmental liabilities: contaminated sites, ARD/AMD potential, tailings dam risk classification
   - Assess water rights adequacy and competing demands in the basin [VERIFY water law framework]
   - Evaluate carbon exposure: emissions intensity, carbon tax/ETS applicability, methane reduction commitments
   - Review social license status: community agreements, resettlement obligations, stakeholder opposition history

6. **Commercial and valuation cross-check**
   - Model asset NAV using verified reserve inputs, operating costs, and commodity price assumptions
   - Stress-test under downside commodity price and production scenarios
   - Identify value gaps between seller representations and DD findings
   - Quantify contingent liabilities (environmental remediation, ARO, pending litigation) for purchase price adjustment

## Output

Produce a **Resource Asset DD Report** containing:

- **Executive summary**: Asset overview, investment thesis validation, key risks, and go/no-go recommendation
- **Reserve/resource summary table**: Classification, volumes/grades, effective date, reporting standard, and any reclassification adjustments
- **Operational assessment**: Production performance vs. plan, infrastructure condition, cost benchmarking against peers
- **Regulatory and permitting matrix**: Permit inventory with status, expiry, transferability, and compliance flags
- **Environmental liability register**: Identified liabilities with estimated remediation costs and timing
- **Risk register**: Ranked technical, operational, regulatory, and commercial risks with mitigation recommendations
- **Purchase price adjustment schedule**: Quantified adjustments for reserve reclassifications, deferred CapEx, and contingent liabilities

## Quality Checks

- Reserve estimates reconcile to underlying geological data and comply with the applicable reporting standard
- All cost figures are sourced from audited financials or operator-provided schedules (not analyst estimates)
- Permit inventory is complete and reflects current status — no expired or pending permits omitted
- Environmental liabilities include asset retirement obligations (ARO) consistent with current accounting standards
- Commodity price assumptions are explicitly stated with source (forward curve date, broker consensus, or management case)
- Every jurisdiction-dependent conclusion (fiscal terms, water rights, permitting regime) is tagged [VERIFY]
- Report distinguishes clearly between facts confirmed during DD and management representations not independently verified